:
Good afternoon. We are very pleased to have this opportunity to appear before the House of Commons Standing Committee on Health representing the tax policy branch of the Department of Finance.
The role of the tax policy branch is to develop and evaluate federal taxation policies and legislation in the areas of personal income tax, business income tax, and sales and excise taxes. We understand that the committee is currently studying childhood obesity and that witnesses appearing later this afternoon will discuss a range of issues pertaining to the potential use of economic instruments to affect health and lifestyle choices, including diet and physical activity.
Our appearance before the committee will allow us to provide some information on taxation initiatives that have been taken to date, and also to provide a sense of the process by which any future initiatives might be considered or evaluated. We will be pleased to answer any questions from the committee at the end of our presentation, and we look forward to remaining in the audience to hear the ideas that are advanced by other witnesses scheduled to appear later this afternoon.
Our presentation this afternoon will cover two main items. First, with respect to specific taxation-based initiatives designed to address the issues of health and fitness of Canadians, we will provide an overview of and update on the children's fitness tax credit, which was proposed by the government in budget 2006, as well as provide a brief overview of other credits related to medical expenses in the personal income tax system. Secondly, on a more general note, we will provide an overview of the analytical framework and the key parameters that are used to evaluate and consider diverse proposals for taxation-based economic instruments.
Turning to the children's fitness tax credit, budget 2006 proposed a new measure to promote physical fitness among children. Studies show that regular fitness activity has a positive effect on children, including balanced growth and development and improved physical fitness. At the same time, the escalating cost of organized sports makes it difficult for many families to afford these activities. Accordingly, budget 2006 proposed a tax credit of up to $500 on eligible fees for programs of physical activity for each child under the age of 16. This credit will begin in taxation year of 2007.
At the time of budget 2006, a working definition of an eligible program of physical activity was established. It is as follows: “An ongoing program suitable for children in which substantially all of the activities undertaken include a significant amount of physical activity that contributes to one or more of cardio-respiratory endurance, muscular strength, muscular endurance, flexibility and balance.”
On July 31, 2006, the government appointed a small panel of experts in health and physical fitness to provide advice on the definition of programs of physical activity that should qualify for the credit. The definition needs to reflect the broad range of activities that are engaged in by children in the pursuit of physical fitness, while at the same time ensuring that eligible programs meaningfully contribute to children's fitness. In particular, the expert panel is considering whether an eligible program should necessarily include an element of instruction or supervision and whether any changes in the eligibility criteria are required to accommodate programs for children with disabilities. The expert panel will also need to ensure that the definition is clear and sufficiently comprehensive to provide guidance to the Canada Revenue Agency in determining the eligibility of specific programs and activities.
The panel consulted extensively throughout Canada with national, provincial, and grassroots organizations and has received considerable feedback. The panel is currently reviewing submissions and is expected to report back to the Minister of Finance later this month in order to have the credit implemented on January 1, 2007.
More generally, the personal income tax system has a number of credits that reflect a person's reduced ability to pay tax because they have incurred non-discretionary expenses. The purpose of these credits is not to create disincentives or incentives. Although no credits are specially targeted to reduce child obesity in this context, there are certain credits that could be claimed under particular circumstances on behalf of obese children.
For example, the medical expense tax credit recognizes the effect of above-average, specific, itemizable medical and disability expenses on an individual's ability to pay income tax. Eligibility for the METC is limited to expenses for prescribed items that are designed for and used exclusively by persons with a medical condition. Certain expenses may be claimed on behalf of obese children under certain circumstances.
In the same way, the disability tax credit improves tax fairness by providing tax relief to individuals who, due to the effect of one or more severe and prolonged impairments in mental or physical function, are markedly restricted in their ability to perform a basic activity of daily living or would be markedly restricted were it not for extensive therapy to sustain a vital function. This needs to be certified by a qualified medical practitioner. Similar to the METC, the DTC may be claimed on behalf of obese children, but we would expect that to be under very limited circumstances.
That, in a nutshell, provides an overview of one specific tax measure, as well as a broad description of how health-related costs are treated in the personal income tax system. I hope it also highlighted some of the considerations that shape policy and legislation, especially in regard to the fitness tax credit. There are certainly many more ideas that have been advanced around the globe concerning diet, health, and activity.
What we would like to do now is provide the committee with an overview of the framework and some of the key factors that we would use within the Department of Finance to evaluate taxation-based economic instruments.
In order to do so, I will turn the microphone over to my colleague Alex Lessard.
It goes without saying that using the tax system to promote public policy objectives must be done judiciously. For a particular objective, using the tax system must be weighed against other strategic instruments such as regulations, expenditure programs or subsidies.
The principles of sound public policy require that the government have a series of instruments, including tax measures, of course, that will contribute as far as possible to achieving these objectives at the lowest possible cost for the government and for the economy and in the fairest and simplest way possible. In addition, these initiatives must be undertaken in the context of a commitment toward a balanced budget and sound financial management.
The proposed new tax measures can be evaluated using the following criteria—and I hope you have all received a copy of the chart I distributed—: efficiency of achievement in the public policy goal, the legal and financial impacts, economic efficiency, fairness and simplicity. I would also mention that these proposals were evaluated individually, and that the weight given to each criterion may vary depending on the measure involved.
The first criterion, efficiency of achieving public policy goal, may be broken down into four aspects: targeting, consumer and producer responsiveness, experience in other jurisdictions and results measurement. There are two important factors involved in the first aspect, targeting. First, we must maximize the correlation between the products affected by the tax measure and the public policy objective. Second, we must choose the tax instrument to be used correctly. By tax instrument, I mean the individual income tax system, the sales tax, the excise tax, and so on.
In the case of the second factor, consumer and producer responsiveness, we have to determine whether the latter will change their behaviour as a result of a new tax measure, such as a tax, and to what extent they will do so.
A third very important factor is the experience in other jurisdictions, either provinces or countries. We have to analyze the context that existed when they were implemented and the results achieved compared to the objectives that had been set.
Results measurement is the fourth criterion, and it is very important to properly assess the government's ability to measure the results of a tax measure. That makes it easier to re-evaluate the measure and to take the necessary action.
The second main criterion is the legal and fiscal impact. The measures may be incentives or disincentives. Each of these measures will likely have an impact on government revenues. Of course, an incentive, such as a tax credit, will probably reduce the government's revenues, while a disincentive, such as a tax, should increase them. In both cases, in the context of a balanced budget, these increases or decreases in revenue could have an impact on other taxes or on government spending.
The second factor under this heading is indirect fiscal impact. In this context, it is important to evaluate the impact of a tax proposal on the income tax base, the GST base or the HST base. Any change of this type could have a financial impact on the provinces.
The third aspect is the precedents. It is important to bear in mind that some incentives targeting a particular industry could give rise to similar demands from other industries and, thereby, increase pressure on the government's fiscal framework.
Finally, it is essential to ensure that any tax measure put forward does not run counter to any agreements between Canada and other jurisdictions or to the Constitution, which of course includes the Canadian Charter of Rights and Freedoms.
I come now to the criterion of economic efficiency. In addition to an overall cost-benefit analysis, we will try to check the few criteria regarding the tax measure. For example, will it promote more productive use of resources or stimulate innovation? Or will the measure rather have some perverse effects such as creating a black market? Another possible perverse effect would be that by increasing a tax too much, the measure could become prohibitive and reduce revenues rather than increasing them. Consideration must of course be given to the impact of any measure of this type on competitiveness at the provincial or international level.
The administration costs of a measure are an aspect that should not be neglected. This is an integral part of any public policy, be it an expenditure program or a tax measure.
Finally, the adjustment costs change the behaviour of tax measures, and measures lead to new adjustments on the market, and in turn, result in social or economic costs. For example, if we put a tax on a particular product, it is possible that companies will experience a drop in sales and decide to close down some plants. That could lead to job losses, and so on.
It is important to estimate the fairness of the tax measures because they could result in a disproportionate burden or benefit for certain groups. This could be true of certain regions or industries as well.
The simplicity of the design, administration and compliance of a tax measure is the final criterion. A tax measure is more efficient if it is relatively simple to implement and easy to understand by the taxpayers it affects. However, if the targeting of the measure or adjustments to it over time require complex rules, this advantage may disappear. In such a case, there is a danger that the tax system may become too complicated with respect to the design, the administration or the compliance with the tax measures.
In conclusion, I would just like to say that the government has a range of strategic instruments it can use to meet its public policy objectives. They include economic instruments, and, of course, tax instruments such as consumption taxes or tax credits.
Any proposed tax measure may be evaluated using the five basic criteria we have just outlined. Whatever the objective, the government must take into account all of the strategic instruments available and select the solutions that can provide the best results at the lowest cost and of course in the simplest and fairest way possible.
We are now ready to answer your questions.
:
Thank you, Mr. Chair. I appreciate the invitation to appear before the committee.
The Centre for Science in the Public Interest is a non-profit consumer health advocacy organization, specializing in nutrition issues, with offices in Ottawa and Washington, D.C. Our health advocacy is funded by over 100,000 subscribers to the Canadian edition of our monthly Nutrition Action Healthletter, which is read by more than 1,000 residents in most federal ridings. CSPI does not accept funding from industry or government, and Nutrition Action does not carry advertisement.
Diet-related disease is an urgent public health problem in this country. Most Canadians consume too many calories and too much saturated and trans fat, salt, refined flour, and added sugars, and not enough vegetables, fruit, whole grains, and legumes. Every year, diet-related cases of cardiovascular disease, diabetes, and certain forms of cancer prematurely end the lives of tens of thousands of Canadians and rob the Canadian economy of $6.6 billion, according to Health Canada, due to health care costs and lost productivity. These numbers describe real avoidable deaths and financial losses, both on a grand scale, yet the Government of Canada has done little to help reduce them.
Health Canada could use its nutrition expertise to help provincial education authorities develop school curricula for health, nutrition, and cooking courses, and nutrition criteria for school food service offerings. The federal government could also use its spending power to become the last OECD country to publicly subsidize a national school meal program, so that every child, regardless of means or region, is fed a nutritious meal suitable for optimal health and learning. By comparison, in 2005, the United States federal government spent the equivalent of $11 billion Canadian in subsidizing school meals.
Parliament should revisit advertising rules in the Food and Drugs Act and the Competition Act to ensure that they adequately protect children against a barrage of commercial advertisements promoting nutrient-poor foods and products that promote sedentary living, such as video games and television programs. Parliament's prompt intervention is preferable to years of test case litigation that might determine that all ads directed at children are inherently misleading and therefore illegal, because of children's unique susceptibility to manipulation.
Rather than resting on the laurels of mandatory nutrition labelling for most prepackaged foods, as have some of the government witnesses, we hope the government, members of this committee, and their caucus colleagues will support the expansion of existing nutritional labelling rules when Bill comes to a vote in the House on November 8.
Current regulations are predicted to reduce the burden of diet-related disease by approximately 4%, by producing $5 billion in cumulative economic benefits in the coming two decades at a non-recurring cost of about one-fifth of one percent of food sales for a single year, during the phase-in period—a minimum of 2,000% return on investment.
Children and adults generally eat the same foods manufactured by the same companies and restaurants, and live in the same physical and social environments. As population health experts says, they swim in the same stream. So restricting remedies for childhood obesity to settings such as schools, where children can be targeted exclusively, would produce only partial success.
Many of our recommendations are echoed in the World Health Organization and the pan-Canadian healthy living strategies. But the federal government has made little progress in implementing the policies or funding programs recommended in these two strategies, despite having endorsed both.
Health Canada's scientific clout could also be used to urge food companies to reduce the amount of salt added to processed and restaurant foods, which are the sources of three-quarters of the sodium in our diet—as the United Kingdom and France are now doing, and as the World Health Organization is actively encouraging at a technical meeting in Paris this week, which starts today.
Extrapolating from a U.S. study, a 50% drop in the sodium intake in Canada would cut heart attack and stroke deaths by more than 15,000 annually. Ridding the food supply of trans fat could avert hundreds and possibly thousands more premature deaths.
Recommendations to reform food taxes have been advanced by expert reports published by--and I won't list them all--the Canadian Institute for Health Information; the World Health Organization; the Chief Medical Officer of Health for Ontario; and the U.S.'s Institute of Medicine, with two reports. Notably, the federal-provincial-territorial The Integrated Pan-Canadian Healthy Living Strategy, which was supported by ministers of health of all political stripes, recommends that Canadian governments “undertake [a] feasibility study on fiscal measures to encourage healthy living (i.e., tax credits/penalties, subsidies, price supports, etc.)”.
Our recommendations involve both taxation and tax relief, depending on the nutrient profiles of food. The federal government now collects GST from about one-third of all food expenditures, drawing about $2 billion in tax revenue annually. At present, the Excise Tax Act appears to partly acknowledge the importance of nutrition by imposing taxes on soft drinks, candy, and snack food, but promotes unhealthy diets by taxing low-fat milk and vegetable dishes when sold in restaurants, as well as club soda, salads, vegetable fruit trays, and small bottles of water when sold in retail stores.
Meanwhile, many unhealthful foods sold in retail stores are tax-free, such as sugary breakfast cereals, trans-fat-laden shortening, high-saturated-fat cheese, chicken wings, coffee, cream, and even unhealthy luxury foods such as salty caviar.
The federal government should consider whether economic disincentives to choose healthy foods and tax relief on health-eroding foods comport with this or any government's commitment to reduce the burden of chronic disease. Quite frankly, tax incentives should be smart, not dumb. They should help prevent disease and promote efficiency, not prevent efficiency and promote disease.
A British epidemiologist estimated, in a study published in the British Medical Journal, that applying his country's 17.5% value-added tax to a few categories of food that are high in saturated fat would reduce saturated fat intake enough to prevent between 1,800 and 2,500 heart attack deaths per year in the United Kingdom. Researchers examining conditions in the United States, Denmark, Tanzania—coincidentally—China, and Norway have lent credence to the potential of tax price incentives as a means to help achieve population-level dietary change. Even researchers critical of food tax reform predicted similar effects on dietary fat intake, but failed to appreciate the huge numbers of lives that could be saved by such dietary changes.
Like the successful Canadian experience with tobacco taxes, sensibly designed food tax incentives could help internalize the cost of food choices and promote nutritious eating. Moreover, the effects of adding GST to nutrient-poor foods could be amplified by requiring manufacturers of taxable foods to indicate on the label that the product is subject to GST. This would send both information and price signals to consumers and create incentives for manufacturers to reformulate foods by, for instance, including less added sugar and salt, more whole grains, fruits, and vegetables, or replacing saturated fats with unsaturated fats.
The average Canadian now spends about $56 per year paying GST on food purchases. In 2006-07, the GST credit reimburses $354 to the average single individual earning $20,000 per year and $708 to a family of four with the same income. These rebates could be increased by a few dollars per person to offset further regressive effects, if any, of GST reform, or increased even more ambitiously to help reduce food insecurity.
In conclusion, plainly policy-makers can't turn the clocks back to a time before obesity rates began to rise. They must consider the causes of the causes of childhood obesity and other diet-related diseases and then focus on solutions that the best available evidence indicates will protect population health benefits.
Some food and media companies defend their behaviour by wagging fingers at poor parenting or overstating the capacity of children for sound judgment by embracing notions like “kid power”. These are efforts to shirk responsibility and excuses for doing nothing. In reality, dramatic national--indeed global--changes in sales tax policies, government dietary advice, food manufacturing and marketing practices, school curricula, and the unprecedented growth of sedentary media and computer technologies used for marketing, entertainment, and work have likely all contributed to eroding environments for children and adults. Governments should actively develop programs and policies to repair and prevent the adverse health and economic effects of these major societal transformations.
Thank you.
:
I would like to thank the members of the committee for providing me this opportunity to address you today.
I'm a health economist at the University of Alberta, and I'll be focusing my comments today on food price interventions, because that's my area of expertise, but I don't in any way mean to suggest that other forms of intervention shouldn't also be considered.
As you know, obesity and dietary-related diseases have come to be viewed as some of the greatest ever threats to public health in Canada. Obesity-related diseases are estimated to cost the Canadian health care system billions of dollars annually. A particularly disturbing trend is an observed increase in childhood obesity, as highlighted most recently in the findings just published by Statistics Canada from the Canadian Community Health Survey.
Both policy-makers and the general public have been discussing whether government interventions are warranted and, if so, what measures should be undertaken. Tax policy has been proposed as a possible instrument for reducing the incidence of obesity and dietary-related non-communicable diseases. This has become popularly known as a fat tax approach, and I'll use fat taxes to discuss taxes on a wide variety of food items.
Several versions of fat taxes have been proposed. The most commonly discussed approach is actually not a tax on fat content per se, but rather a tax on foods deemed to be nutritionally undesirable, particularly energy-dense nutrition-poor foods. Sweet and soft drinks, potato and corn chips, and certain categories of fast food have all been suggested as candidates for such taxes.
A related but more complicated suggestion is to tax large categories of food on the basis of the content of certain macro-nutrients for which we wish to reduce consumption. For example, one might impose a per-unit tax on saturated fat content of all foods available to Canadian consumers.
In any case, the primary goal is to reduce consumption of certain food items or macro-nutrients by increasing their price relative to other food. Furthermore, such taxes would also raise revenues that could then be used to fund other health promotion activities, such as exercise programs for children or nutritional information campaigns. Alternatively, fat tax revenues could be used to reduce other taxes elsewhere in the economy.
Researchers have just recently begun to investigate the possible effects of such taxes. Such work necessarily involves interdisciplinary challenges and relating fiscal policy to behavioural changes and further relating these changes in behaviour to effects on public health.
With these important caveats in mind, there are still certain themes that emerge. One is that small price changes are only likely to achieve small changes in behaviour, and as a result, small taxes will have minimal impact on obesity. Large price changes, such as doubling the price of sugary soft drinks, would have much more dramatic deterrent effects, but would also necessarily involve larger monetary impacts on consumers who still choose to consume these foods.
One interesting thing to note with regard to childhood obesity is that very little is actually known about how children respond to price differences, as they are often outside the scope of economic studies of food demand and often, for reasons of research ethics, are deliberately left out of such studies.
We also do not know much about how fat taxes may impose a stigma on certain food items. For example a 5¢-per-bottle tax on soft drinks may not, in itself, induce large changes in behaviour, whereas a tax that is accompanied with a scarlet letter on the packaging highlighting that the food item has been singled out for a fat tax may have a much greater deterrent effect.
Another likely outcome is that fat taxes, particularly ones that target broad categories of food, will be regressive in that they will have a larger relative impact on the real purchasing power of poorer Canadians, who spend a much larger percentage of their income on groceries. They would therefore be paying a relatively larger portion of their income on fat taxes. As the previous speaker noted, this could be corrected through increasing rebates on these taxes. However, that would be an additional intervention.
Furthermore, economic pressures may already be pushing lower-income Canadians to some of the same energy-dense nutrition-poor foods that one may wish to target with fat taxes. Hunger may trump nutrition for many families with limited ability to pay for food, and basic energy needs can be met much more cheaply by purchasing energy-dense foods. Taxes targeting these foods may increase the difficulties faced by our most vulnerable households. There is also some evidence that tax schemes targeting saturated fats or other macro-nutrients will similarly have disproportional impacts on less wealthy households. In particular, if revenues from such taxes are used to offset taxes on income or allow for exemptions of other goods from GST, the net effect could be a transfer from poorer households to richer ones.
Another issue to bear in mind is that while taxes can indeed discourage consumption of targeted products, the universe of food items that consumers may instead choose to purchase is quite large. This is referred to as a targeting problem. A consumer who is discouraged from purchasing a sugary soft drink that has been subject to a large tax may instead switch to an item that is no more desirable from a nutritional point of view.
Taxes can only be implemented by clearly outlining in legislation, or in regulation, how and to what the tax is to apply. For example, a tax on carbonated beverages containing high-fructose corn syrup that doesn't apply to uncarbonated lemonade containing cane sugar may lead consumers to substitute one energy-dense, nutrition-poor food for another. If we agree that both the cola and the lemonade from the previous example should be subjected to the tax, but exclude beverages with the 10% real fruit juice content, producers will reformulate their products accordingly and consumers will follow their pocketbooks and buy those new products.
Whenever you draw a bright line, people will step over it to avoid the tax. The net effect may be that we redirect consumption while achieving negligible health benefits.
Macronutrient-based taxes may raise similar issues, as many affected food items may have both undesirable and desirable food properties. A tax discouraging pre-teens from consuming large amounts of ice cream containing high saturated fat may have appeal, but the same tax may also increase the price of the whole-milk products that most nutritionists encourage parents to buy for their toddlers. It would be difficult, if not impossible, to tax the same product differently for different uses.
Some studies have also suggested that macronutrient-based taxes may even have perverse nutritional effects. The next speaker may address this further in his comments.
An alternative approach to consider is the subsidization of food items of which we wish to encourage consumption, such as fresh fruit and vegetables. Such subsidies would benefit all consumers and may provide the greatest benefits to lower-income consumers. In contrast to my earlier comments regarding the difficulty of targeting a fat tax, we can be more certain that consumers will be encouraged to eat more of those foods that are the focus of what I would call thin subsidies.
I've been involved in work that suggested such subsidies could also further reduce disease-burning directly--that is, beyond the indirect impact through reductions and obesity--if they target food items known to aid in the prevention of diseases such as stroke, heart attack, or cancer. While such subsidies would necessarily involve outlays from government that eventually would cost taxpayers, it would also help the same consumers at the grocery store checkout counter and over time may also result in lower public expenditure on health care. However, this approach would still involve the difficult task of deciding what to subsidize and what not.
The members of this committee may also wish to consider those programs already in place that affect food prices in ways that may have undesirable influences on dietary choice. The previous speaker's testimony highlighted some of the tensions in the existing tax system. For example, in Canada we also have made extensive use of indirect and direct subsidies, administered pricing, and regulated marketing to support some areas of agricultural production. These affect prices, which in turn affect behaviour. Another example is that of increased trade with our neighbours. Increased trade in food products enhances consumer access to fresh fruit and vegetables, but also enhances their access to high-fructose corn syrup.
There is also a wide variety of non-food-related policies that may indirectly affect dietary choice. Since these programs were originally established in complete isolation from health policy, it's not at all surprising that the net effect on public health may be negative. In much the same way as policy-making processes are increasingly subjected to environmental impact assessment requirements, perhaps agricultural and food policies should be formulated with a health filter in place to avoid perverse dietary outcomes. Changing those programs that are currently having the most deleterious effects on public health should perhaps be considered before new taxes are imposed.
I feel strongly that there is a role for government in issues of childhood obesity and the promotion of dietary health. Yet as my comments today indicate, I do have some concerns regarding whether new taxes can be particularly effective in pursuing society's goals in these areas. The debate regarding fat taxes is a good one to have, however, particularly as it shines a spotlight on the extreme importance of food access and affordability on nutrition and obesity.
I thank you for inviting me here today and welcome any questions you may have later.
:
I thank the committee for inviting me here today. I've been working in agricultural economics for 30 years and no one has ever invited me to talk to them on anything I have ever done, so I welcome the opportunity. I know Sean hasn't been at this as long as I have, so he's very lucky it happened early in his career. I only hope you don't regret your decision.
Some hon. members: Oh, Oh!
Dr. J. Stephen Clark: I've been working on fat taxes now for about two years. I've been working on them with my colleagues in economic research at the U.S. Department of Agriculture. Of course, the U.S. has obesity issues as well, and they are basically the same as ours. There are obesity issues in the U.K., in Germany, and in particular, it's interesting that this committee is looking at childhood obesity, because that seems to be where the big concern is.
What I'd like to talk about today is the style of fat tax that we might think about imposing. If there is a call for fat taxes, basically we want to tax the food that is unhealthy so that will make us healthier. In other words, reduce the amount of unhealthy food we eat and, hopefully, reduce the obesity problem.
There are a couple of ways we might do it, and the previous two speakers have talked about that. We might actually tax the nutrient content of the food, based on what we believe are the unhealthy effects of that particular nutrient. That's what we call an excise tax, and that's one possibility. But that's not the one I'm going to talk about today and that's not the one I've actually been looking at, although I have some thoughts on that one as well, if you want to discuss it further.
The one I have looked at is basically the fat tax that taxes broad commodity groups because we believe they're unhealthy. For example, taxes on junk food or fast food or a food that's unhealthy are actually the kinds of taxes I look at.
You have to understand that if we tax a food group like that--for example, fast food--within that group there are all kinds of different foods, all of which have different fat content. So if we take that broad category and tax it at the same rate, what we're doing there is taxing the broad category by the same amount, whereas within that category there are several different levels of nutrients. There could be high fat or low fat within that group.
For example, if we're thinking about taxing cookies, if you go into the store and look, you'll see there are all kinds of different cookies, and it turns out that some of those cookies that have the lowest fat content could actually be the highest priced and they could be the highest-quality cookies from the point of view of the consumer. The low-quality cookies could actually be the high-fat-content cookies.
A colleague of mine once told me that he believed that putting fat into food was a cheap way to make it tasty. Once again, if you take the cookie as a tax example, you could think that perhaps the manufacturer will add a lot of fat to the cookie and then sell it at a very cheap price. If we take all cookies and we tax them, then what we're doing is taxing what we call the composite. We're not taxing the individual food group; we're taxing the composite. We're taking a rough swipe at taxing the cookies.
And if the high-priced, high-quality cookie is indeed the lowest-fat cookie, if you tax that, consumers will search for a way to avoid the tax. One thing consumers could easily do is lower the amount of tax they're paying by switching from the low-fat, high-quality cookie into the high-fat, low-quality cookie, because its price is less.
In fact, if you look at basic food groups--and I've spent a little bit of time looking around--it turns out that the lower-fat, healthier foods within a food group tend to be the highest priced. So it could easily be true that if you tax that whole composite, the consumers could switch from the low fat to the high fat. In other words, they could eat more of the unhealthy nutrient that we're trying to tax.
I'd like to talk about this switching among the composites, but it's also true that when consumers eat, they don't really eat a particular food group. They don't just sit down and eat cookies or ice cream or something like that. What they actually do is eat a meal. So if you start taxing one particular part of the meal, you could get effects going on in the other part of the meal.
For example, suppose we think of cookies as a dessert. Well, if a cookie is a dessert, and you tax the cookies, and the consumer doesn't want to have the cookies anymore, what they might do is just substitute ice cream. Ice cream might be higher in fat than cookies. So it's not just a case of the switch within the composite that could cause problems. There could be switching among food groups making up that meal that could actually make consumers eat more unhealthy food by switching to the ones that may actually have more fat or be more unhealthy.
So there are those two kinds of issues going on. There's the problem with the composite and there's the problem of switching among the food groups, so we might actually get a result that is kind of perverse. In other words, we might actually make people more obese by increasing the prices of those food groups.
I've spent a little bit of time looking at some numbers for the U.S., where I've gone through some of these things. What I'm finding when I look at the Americans is that basically, over time, the Americans have been shifting to lower-fat foods. They've just been doing it. So people are switching, as new information comes out, to the healthier foods.
Americans also consider the fat content of food to be a low-quality characteristic. When prices fall for American consumers, they switch to the lower-fat foods, and when prices rise, they switch to the higher-fat foods. Americans also consider the fat content of food to be an inferior. In other words, as their incomes rise, they will desire that characteristic, that fat in the food, to a lesser extent.
There's also a substantial shift between what I call quantity of food, measured in kilocalories, and quality of food, measured as fat content. Consumers seem to want to keep that thing constant, so if they increase one, they tend to lower the other. So they'll say to themselves, if they want to eat that fatty food, they won't eat as many kilocalories, and that's how they try to keep things relatively stable. Also, there are substantial shifts among the food groups in that meal that could cause very strange outcomes in terms of the amount of fat content people actually consume.
Those are what my results have shown. I would be happy to answer any questions you may have, and I thank the committee for inviting me.
:
Thank you very much, Mr. Chair.
I'd like to welcome all the witnesses here at committee today. They were excellent presentations, each and every one of them.
I want to focus in a bit on the GST to start with. Whoever feels comfortable answering can please just dive in.
Has the imposition of the GST on unhealthy foods ever been evaluated in terms of its impact on the consumption of these products? Has that been studied? I am interested to hear if it has and what the results of that study were. If not, would it be possible to analyze the costs and the benefits of the current GST tax system regarding what we're trying to accomplish toward getting people to eat healthier and improve health outcomes?
Secondly, regarding the same point, under the current GST tax structure, would it be feasible to create—and I like this idea today, I hadn't heard this before—a nutrition criterion that could be used to distinguish taxable from non-taxable foods in the effort to promote healthy eating and prevent obesity? I think that would definitely send a message to consumers. If there is a big red GST sticker on something, people will know it's not a healthy food. If it doesn't have that sticker, it is a healthy food.
But within the context of this whole debate, I'm quite torn here today, because there's certainly a balance in the nanny state. Granted, the nanny state in this country thankfully pays for health care, angioplasty, and bypass surgery, but there is a conflict between the nanny state and the libertarian, the individual's freedom of choice—I choose to eat cookies—and not punishing people for choosing certain foods. So there's really a balance going on.
So if you would comment on those two little matters about the GST, that would be greatly appreciated. I like this idea of a nutrition criterion.
I'll wait for the answer before asking the second question. I'm always a bit leery that you're going to cut me off, Mr. Chair.
:
I can address that question.
You're quite correct, we are already making distinctions in the GST rules as they are. With regard to your side point, I guess, about the nanny state, in this particular context we're talking about children. Children have nannies, and that's probably a good thing.
But on the general question of the GST, there aren't any studies done. There are some data available that can be used to forecast the effect of the GST on shipments of soft drinks, and those data are actually quite interesting. When the GST came into effect in 1992, it actually lowered the tax on domestically consumed soft drinks because they had previously been subject to the manufacturer's sales tax, which was 13.5%. Domestic consumption went up a little bit, but exports went up quite considerably because they were no longer subject to tax whatsoever.
Although the GST revenue data are only collected on an aggregate level, the officials at the Department of Finance could do a fairly good estimate of the impact by looking at historic A.C. Neilson sales data, which can be broken down by product category. They could just look at the rules and see which ones would be subject to tax.
With regard to the question about how we could develop nutrition criteria to make the distinctions, there's a professor at the University of Oxford in the United Kingdom who was contracted by the U.K. Food Standards Agency to come up with what they call a food scoring system. I think it's a very promising technique. What he did was assign foods to three levels of nutritional quality: very helpful, mediocre, and low.
I'd like to follow up on what Bill just said.
Bill, I understand that certainly PepsiCo had tried to do that. The new wave president there tried to assign three levels to foods--decadent foods, healthier foods, healthy foods. It was a red light, amber light, green light, based on fat content, sugar, salt, and whatever.
I couldn't agree with you more about the food guide and I couldn't agree with you more about that chart on the back of the stuff. I'm a physician and I never have a clue what it means. I think that if we're going to give a simple message to people that we do have a preference that they eat healthier things, and that we're going to attack it somehow by trying to make sure the healthier things are cheaper, then we have to demonstrate to Canadians in everything we do, whether it's environmental or nutritional or health impact or in some way, that we do have a preference.
Could the panel comment on this? If there was an expert panel that could help us with a red light, amber light, green light approach, and if you put the GST on the red light products, are these things we could do at the same time? As I've heard the witnesses say, we have to do something about getting green light products into schools, like the apple program in the U.K. The ancient meddler in my riding, Fiona Nelson, always says that when she was a kindergarten teacher 40 years ago, she could order how much milk the kids needed in the morning and it just showed up in the classroom the next day. We've somehow gone backwards from getting kids what they need--and I guess we certainly hear about the distance thing.
Tell me what the expert panel is looking at on the physical activity piece. What's their mandate?
Also, could we have an expert panel in this country that just decided whether stuff was red or orange or green light and we put GST on the red?
:
Thank you, Mr. Chairman.
Thanks to the members of the panel. Certainly, we've heard some very interesting comments here this afternoon.
I think everybody would have to agree that although we've heard a lot of very interesting things and we've heard a lot of different things, I'm not so sure we are getting a whole lot closer to determining what is the best route to take to tackle this huge dilemma of childhood obesity we're facing. We've talked about fitness, we've talked about tax credits in different forms, we've talked about fat tax, imposing taxes on different things.
I guess, Mr. Trueman, I would agree with what you've said. I'm not sure that the correct way to go is to start imposing more taxes on people. But the one thing that I think is a reality is that good eating and healthy eating is not cheap. It costs a lot to eat well and to eat healthy. Whether that's imposing a fat tax or whether it's doing something else with our food pricing system, I don't know, but I think that's very much a reality. I think that's one reason there are so many people who don't eat properly. I think Dr. Clark said we can choose the right food, we know we can get the right food, but it's exercise we need to promote more. But everybody in this country can't get the right food, and I think that's where we need to start.
Another thing we talked about was sugared soft drinks and those not being a healthy choice in most cases. But I must hear two or three times a week about people saying, “Are you drinking that diet pop? That's not healthy.”
I'd like to hear some comments on those issues, about the cost of eating healthy and issues such as people being concerned about non-sugared soft drinks.
:
Thank you for your comments and for your studies on obesity. We need to adopt a different attitude in order to tackle the issue of junk food properly. Several of you have given us different opinions on whether to use incentives or disincentives. The government will have to choose between a credit or a special junk food tax.
This is an area that requires several initiatives, including education, which has not been discussed much. In my opinion, we need participation at many levels, including the parents, social circle and the educational sector.
Mr. Clark made an important point. We need to use several kinds of social programs in order to better support the most underprivileged families because social class is also an important factor in obesity. That does not mean that there is no obesity amongst people who earn more, however they perhaps have more means to help themselves when they want to take control of their lives.
Obesity is not only a federal government problem but also a provincial one. Provinces must take steps to intervene amongst children in schools and to better assist families through social programs.
You mentioned that any initiative taken to tackle the problem of obesity are important, including the Canadian social transfer and the tax system. We seem to be moving away from the issue, but after having considered the matter of obesity, the government, through its legislative framework, will indicate which direction to follow or what to think about in terms of ways of tackling obesity.
Mr. Clark is the one who spoke about the problem in terms of social programs. For example, poor families would have more money to feed themselves and to clothe themselves if there were more social housing. We know that people who have less money are especially affected by these problems.
A no-smoking campaign was undertaken and it was successful. Do you think that campaign could be an example which might help us find solutions, in terms of the steps taken to tackle smoking, its impact on people's quality of life, the risk of lung cancer, etc. Even though many continue to smoke, people now have a greater fear of smoking, because they know more about its effects.
Eating habits are also difficult to change. We all eat junk food, chips, for example. Some people have told me that when they open a big bag of chips they have to get right to the bottom of the bag.
Do you think that the successful anti-tobacco campaign could serve as an example to plan a junk-food awareness campaign?
If we went with just the subject matter and went with those four, it would add four more meetings. We went around this battle once and we said we had determined there would be eight. We have the eight there. If we want to cut it off there, we will eliminate those four. I believe that will be difficult to do. I said that the last time we went around, but we really need a consensus of opinion here.
If we want to add the four, we'll do it. We can take them one by one and decide if we want to hear from the doctors and the medical field or not, and then if we want to hear from the first nations or not, and then if we want to hear infrastructure and provinces, and so on.
That's the way I think we should proceed, unless there's a consensus to go with all four. Then we can do that. If there's a consensus to go with no more, we can do that. But somehow we have to decide. We have to put some parameters around what we're trying to do as a committee, and the timelines on it, and still have a full enough study on childhood obesity for our report to have validity.
That's the problem I have as a chair. The research team has done a terrific job, I believe, with the panels we've had so far, and it's really hats off to them, because they've put it together in a very productive way.